The Oklahoma mogul spoke up forbes on how it protects its investments from the “almost certain” recession.
After the S&P 500 entered a bear market last week, many American billionaires are convinced that a recession is imminent. One of them is George Kaiser, one of the richest people in Oklahoma with an estimated net worth of $9.5 billion.
Kaiser, 79, tells forbes that a “recession seems almost certain” and that he expects the economy to tip into a downturn in the first two quarters of 2023 with a continued decline in the stock market. The point at which the stock market bottoms out and begins to rise again is still a long way off, according to Kaiser. “Historical analogies would point to an overall drop of 35% from the peak, but that history is largely irrelevant as so many of the factors are unique,” he said.
Emperor who appeared on the forbes List of the 400 richest Americans for more than two decades is no stranger to boom-and-bust cycles. His fortune is focused on oil and gas, with other holdings including a 55.8 percent stake in publicly traded Bank of Oklahoma (BOKF), a 20 percent stake in the NBA’s Oklahoma City Thunder, and several investments in public and private companies through his private limited company Argonaut. When oil prices plummeted in 2020, Kaiser’s oil businesses suffered and his estimated net worth fell to a fifteen-year low of $4.9 billion. A year later, his fortune had recovered to $10 billion thanks to a rebound in oil prices and private equity investments that benefited from the booming 2021 market.
Now, as stocks fall and oil prices continue to rise — the US oil benchmark WTI is up more than a third since the beginning of this year — Kaiser is managing his investments to weather a potential recession and stay ahead .
“A recession seems almost certain, but it doesn’t change much in the strategies of our operations as each marches to a different drummer,” he said. “Each investment business has its own unique customization.”
Kaiser’s oil and gas assets include Tulsa-based Kaiser-Francis Oil Company and Oklahoma City-based drilling company Cactus Drilling, both privately held, as well as a 77.5% interest in liquefied natural gas (LNG) shipping company Excelerate Energy , the went public in April. Rising oil prices have buoyed independent oil companies like Kaiser’s: “We remain aggressive on drilling and production because this is a prime opportunity time,” he said.
With the Federal Reserve raising interest rates to cool rising inflation, this has brought a positive side to the Bank of Oklahoma’s energy lending business. In its first quarterly reportthe bank said energy loans made up 15% of its total lending — a total of $3.2 billion, including $2.4 billion to oil and gas producers, and a 6% increase year-to-date. When interest rates rise, banks tend to make more money on the spread between the interest paid to customers and the interest earned on the investment. “Energy credit — where our competitors are pulling in their horns — presents an opportunity, and widening spreads from rate hikes are improving profitability,” Kaiser said.
Even when the stock market was still running hot, Kaiser had expected a downturn due to growing fears of a recession and invested accordingly. “Our primary new response to this [economic] Market environment has been S&P short hedges for some time (prematurely) which we are slowly unwinding in the hope that we can reasonably pick the timing to enter long at the point of market cap,” he explained. What it means: He bet the S&P 500 Index will fall. So far this year, the S&P 500 index is down 20%.
It’s still uncertain how deep or long a recession would be, with Kaiser citing several factors including supply chain problems, the war in Ukraine and rising inflation. And while average US wages have risen since 2021, those gains risk being eaten up by higher prices for goods and services. Kaiser also expects it will be difficult to attract people to industries that require more workers, such as manufacturing. B. Hospitality, restaurants, nursing, education and trucking. “We are blessed to live in interesting times,” he said.
When asked when he thinks the stock market could rebound, Kaiser — whose wealth has remained roughly flat since January, outperforming dozens of other billionaires and most other investors — ventured a guess that the market might come in March or could bottom out in April next year. “Personal income will drive it once we get all government subsidies back down to recurring rates here and around the world,” he said.
Still, Kaiser thinks guessing the exact timing of the market’s recovery is a no-brainer: “Like pornography, you know it when you see it.”